With the Autumn Budget just weeks away, attention is squarely on which taxes Chancellor Rachel Reeves could end up increasing.
Anticipation has been building for months around the measures that will shape the fiscal event on 26 November, with changes to income tax and potential new property taxes included within the rumours.
Reeves’s first Autumn Budget in 2024 saw increases to employer national insurance (NI) contributions, capital gains tax (CGT) hikes, and changes to inheritance tax (IHT) reliefs.
Many are bracing for similarly impactful announcements this time.
Economists are predicting the Chancellor may need to raise £20bn to £30bn to fill a hole in the public finances.
This hole is partly bigger because the government’s official forecaster, the Office for Budget Responsibility (OBR), is set to lower its UK productivity growth forecast for the coming years.
The move adds pressure on Reeves to fill the gap while outlining credible steps to deliver the economic growth promised in Labour’s manifesto.
With this in mind, The i Paper spoke to experts to explore what they hope to see in the Budget – and what they fear could realistically unfold.
‘I’m worried about pensions tax-free cash’
For independent financial advisor David Stirling, his primary concern is the potential removal or restriction of the tax-free cash element of pensions.
Currently, from age 55, you can usually take up to 25 per cent of your pension money without paying tax on the withdrawal – known as a tax-free lump sum.
The maximum for most people is £268,275, referred to as the lump sum allowance.
This benefit has long been a cornerstone of retirement planning, allowing individuals to access part of their pension savings without incurring tax liabilities, Sirling said.
He added: “Any move to reduce or eliminate this entitlement would cause significant disruption to financial plans, particularly for those aged over 55 who may be relying on this lump sum to clear outstanding mortgages, gift cash to children or supplement their income during early retirement.
“Such a policy change would likely prove deeply unpopular and could have far-reaching consequences for public confidence in the pension system.
“Reeves would undoubtedly face substantial criticism if she were to pursue this route and may instead be forced to consider alternative fiscal measures, such as freezing the lifetime savings allowance or introducing other limits on tax-efficient savings, such as cash ISAs.”
Good news for Stirling is that Treasury sources have played down the likelihood of a change to tax-free cash rules in recent days.
‘I want to see tax traps removed’
Katharine Arthur, partner at accountancy firm HaysMac, fears that come 27 November, there may be more rather than fewer tax traps.
A common “tax trap” flagged by financial experts is the 60 per cent tax trap – where individuals earning between £100,000 and £125,140 face an effective income tax rate of 60 per cent on any pay rise. This happens because of the way the personal allowance – the £12,570 people can earn tax-free – is gradually withdrawn in this income range.
Speaking to The i Paper, she said: “The existence of the so-called 60 per cent tax trap is a telling example of the unnecessary complexity that has crept into our tax system over the years.
She wants to see this tax trap removed, but she fears this is unlikely.
She also worried that more people will be caught in the trap, because income tax thresholds are currently frozen while earnings growth is dragging more people into earning over £100,000.
Ms Arthur added: “We can expect to see an increasing number of people caught in the higher and additional rates of tax as a result of these freezes, which is in turn likely to result in people making behavioural changes to avoid the various cliff edges that working people face as their wages increase.”
Reducing working hours and increasing pension contributions are ways to mitigate tax traps, she said. Beyond that, there is “relatively little” that can be done.
‘I want to see more taxes on the rich’
Dr John Simister, senior lecturer in economics at Manchester Metropolitan University Business School, hopes Reeves will tax millionaires through wealth taxes to fill a growing hole in the public finances.
Wealth taxes – taxes imposed on an individual’s total net wealth rather than their income – have been pushed by many campaign groups and some MPs in the run-up to the Budget, but others argue they are hard to implement successfully.
Dr Simister believes they could help fund public services. He said: “[Reeves] could provide more funding for local authorities to hire more people; this will have a ‘multiplier effect’ – as consumers spend more, private firms will gain revenue, and can thrive.”
He also says he is optimistic about productivity and the economic situation improving in the future.
“There are always problems in the world, but it seems unlikely that we will face problems as severe as the global financial crisis, the pandemic, or Russia’s invasion of Ukraine,” he said.
“New technologies such as AI may raise productivity. The UK might return to the healthy economic growth we had for most decades since the Second World War,” he added.
Additional changes to pensions
Zoe Dagless, director of Meliora Financial Planning, is closely watching pensions.
Significant legislative changes are planned for April 2027, including bringing retirement savings into the inheritance net for the first time.
She worries many investors do not yet fully understand the implications, and that further changes will worsen the situation.
Dagless said: “If additional changes are introduced, pensions, which are already complex, risk becoming a minefield for the average investor. This can make them feel inaccessible, particularly as pensions are compulsory under auto-enrolment, leaving many feeling uncertain about how best to plan for their future.”
Small businesses are another concern for Ms Dagless, already under “significant pressure,” with many local high street businesses struggling.
She added: “Any measures that inadvertently increase their costs or administrative burden could exacerbate their difficulties.”
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